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Gajah Tunggal: Facts & Figures

* Among its peer, in the domestic capital market, Gajah Tunggal is the biggest with Rp 7.66 trillion in market capitalization as of March 1, 2011, while it competitor PT Multistrada Arah Sarana is Rp 1.74 trillion and PT Goodyear Indonesia Rp 414 billion.

* Believe it or not, says Catharina Widjaja, Gajah Tunggal director and spokeswoman, many Phillipinos think that GT Radial is their brand, since you can find the tire easily in the country.

* It operates five tires and inner tubes plants, and a tire cord production facility in Tangerang. It also has a production facility of styrene butadiene rubber (SBR) or synthetic rubber in Chemical Industrial Estate in Merak, Banten.

* It hired more than 11,000 employees, mostly loyal with average 15-20 years of life service. More than 90% of it is working in the production sites. The company may add another 500 people to support the expansion plan, which complete in 2012.

* Gajah Tunggal commenced its expansion program since 2005, come along with the issuance of $420 million bond.

* The company exports most of the bias and radial tire to more than 70 countries around the globe. At one time, the export destination countries even reach 90.

* Nationally, there are 13 tire producers with total production reach 49.85 million car tires and 40.49 million motorcycle tires. According to the Indonesian Tire Manufacturer Association’s data, the national car tire and motorcycle tire sales in 2010 grow 27% and 40% from the previous year. Sales of car tire for replacement is 10 million, export 35 million, and original equipment (OEM) four million units. While motorcycle tire sales for replacement is 23 million, export one million, and OEM 15 million units.

* Gajah Tunggal is already set to produce up to 105,000 motorcycle tires and 45,000 radial tires per day in 2012 as the expansion program complete. Today it produces 67,000 motorcycle tires and 30,000 radial tires per day. For bias tire, the company decided not to increase the capacity as demand is dwindling with the shift to radial tire. The production volume can be increase as the production is not running at the maximum utilization rate.

* By early 2012, Michelin has agreeing to off-take up to five million tires from the company per year. The off-take agreement with Michelin as a strategic alliance that holds 10% of the company shares is actually start from 2009, which gradually up from 1.9 million to three million and four million for the consecutive years.

* Up until today the management argues that the tire producer is no longer having connections with tycoon Sjamsul Nursalim. He ranked number 23 at $850 million on Forbes list of 40 richest Indonesians.Nursalim, the former owner of the now defunct Bank Dagang Negara Indonesia (BDNI), is one of the businessman that receive the government capital injection after being hit by the 1997-1998 monetary crisis. It is says the capital injection for BDNI is Rp 7.2 trillion. Years later, many of the banks have been shut down and the former owners must repay the debts through Indonesia Bank Restructuring Agency (IBRA). Nursalim reported has already transferred his ownership in Gajah Tunggal, along with chemical firm PT GT Petrochem and shrimp producer PT Dipasena to IBRA, who later sold the assets to an investment firm called Garibaldi Venture Fund. Now Denham Pte Ltd, owned by GITI Tire Pte Ltd, is the major shareholder of Gajah Tunggal with 46% of stake.

* Giti Tire Corporation, the sister company of Gajah Tunggal, based in Shanghai and listed in the Shanghai Stock Exchange. The company ranked as one of the leading tire manufacturer in China and the 14th largest globally in terms of sales revenue. According to one official who has been working for 25 years in this company, last year Giti China book $2.5 billion revenue. It sells 17 million tires in China and exports 15 million tires to more than 100 countries. Giti is owned by the Liem family.

* GITI Tire is the owner of GT Radial brand.

* As the brand user, Gajah Tunggal facing some risk. Maria Renata, an analyst from PT Mandiri Sekuritas, in her initiating report (Dec. 22, 2010) on Gajah Tunggal said one of the risks is if there is contract cancellation from brand holders that requires the company to pay royalty fees. Gajah Tunggal enter into Trade Mark Licensing Agreement with GITI Tire and GT International (Singapore) Pte Ltd in 2004, which grant them the license to use the GT Radial trade mark for free, non-exclusive, and non-transferable licenses and are valid unless terminated by any of the parties. The company only paid $1 at the signing of the agreements.

For the bicycle and motorcycle tire, Gajah Tunggal is also grant to use IRC brand from Japan. The company agrees to pay royalty equivalent to a certain rate of the net sales of IRC brand products, where in 2010 it total Rp 9.6 billion. On the other hand, Gajah Tunggal is a house brand for bias tires.
In order to marketing GT Radial in Europe, Gajah Tunggal has made a contract with GITI Tire (Europe) BV for promotion and marketing services for a durations of 2.5 years, starting from July 1, 2008 until December 31, 2010 and it can be extended automatically, unless either party terminate the agreement before its due. The company pays annual fixed management fee 250,000 euro for 2008-2010, and variable management fee of 1% of total GT Radial yearly sales revenue in Europe for the period. The company also should allocate GITI Europe Joint Promotion Fund 1.5% from the total GT Radial sales revenue in Europe for the purpose of promoting its tire distributor in the European territory.

* In the future, Gajah Tunggal hope the government not only indulges the new investors that coming to the country with their foreign direct investment by giving incentives. “You are bringing investors, to compete with, but please don’t forget the old ones, who are already investors. To go global we have to compete with other big boys. To promote our brands it needs a lot of money. The other thing that is very important is to raise the quality and the image of Indonesian tire is by investing in research and development (R&D). It’s a big risk, you can research, you can develop, but the product may not work. So we are asking the government to please consider provide tax benefit or incentives for companies especially local companies who want to go beyond Indonesia,” says Gajah Tunggal President Director Christopher Siew Choong Chan, 55.

* Today, the company’s R&D budget allocation is still relatively small. But since last year they have surpass $1 billion in sales, the management want to add more money into the R&D. One of its inventions is Champiro Eco. It generally has a smaller carbon foot print because it uses more silica than carbon black. It has less rolling resistant which then translate to higher fuel efficiency, less noise without compromising in the performance for both wet and dry surface of roads. “Actually we design this tire for European market, to meet the European environmental standard, which are supposed to be enforce in 2012. But Gajah Tunggal has been proactive to meet that as soon as possible.”

* To boost awareness of Indonesian with the company’s tire brand, management conduct many events and market its tire to a retail chain like Carrefour and together with Michelin opens TireZone. It’s already 37 outlets in 16 cities in Indonesia by December 2010. The stores offer tire from three main brands that is GT Radial, Michelin, and BF-Goodrich. Chan says it’s more as a marketing strategy to create brand position and awareness on Indonesian consumers rather than getting sales from them, which only 1%. Even though it’s relatively small but the presence is the key. “We want to have a bigger presence in every city. We also want Indonesian know that things made in Indonesia can be world class quality.”